By Alexandra Scaggs
U.S. stocks swung between small losses and gains Wednesday after
the Federal Reserve announced another cut in bond purchases, as
expected.
The Dow Jones Industrial Average fell 38 points, or 0.2%, to
16874. The S&P 500 index was little changed, losing less than
0.1%, to 1970, while the Nasdaq Composite Index rose 17 points, or
0.4%, to 4460.
The announcement indicated that officials are becoming less
worried about low inflation, which is seen as a more hawkish
stance, said Dan Greenhaus, chief strategist at New York brokerage
firm BTIG. But the Fed's description of the U.S. economy and its
view on the labor market balanced out that view, he added.
Traders and investors had been concerned that language in the
statement would indicate the Fed could raise rates at a faster
clip. That didn't happen, said QS Investments portfolio manager
Wayne Lin.
"What they're trying to do is just take their foot off the
gas--not step on the brake--and just let it cruise for a while," he
said.
Treasury bonds pared losses in the wake of the statement. Gold
and the dollar slipped.
In recent trading, the benchmark 10-year Treasury note was 20/32
lower, yielding 2.536%, according to Tradeweb. The yield was 2.554%
before the Fed statement. Bond yields move inversely to their
prices.
"The statement was fairly balanced," which suggested the Fed
remains patient in when it comes to raising interest rates, said
Sean Simko, head of fixed-income portfolio management at SEI
Investments in Oaks, Penn., which has $209 billion assets under
management.
Broadly, investors and traders have been debating whether
stronger economic growth is good for stocks. If growth prompts the
Fed to raise short-term interest rates sooner than expected, some
say, stocks could see short-term declines.
"It doesn't impact earnings, but it will impact the [price]
people are willing to pay" for stocks, said Andrew Slimmon, who
helps manage $4 billion as a managing director at a unit of Morgan
Stanley Wealth Management.
News earlier Wednesday that U.S. economic growth rebounded by
more than expected in the spring initially sparked gains. Stocks
opened broadly higher after an early reading on second-quarter
gross domestic product said it rose 4%, well above forecasts of 3%.
But the S&P 500 erased those gains before noon before
rebounding after the Fed statement.
Following the report on the U.S. economy, the odds of a rate
increase at the Fed's June 2015 meeting rose to 60% recently,
compared with 54% a day earlier, according to data from CME.
Some investors cautioned that the GDP report is subject to
revisions, and that wage pressure remains contained, allowing the
Fed to be patient in raising rates.
"Today's data represent progress," said Tony Crescenzi, senior
market strategist at Pacific Investment Management Co. in Newport
Beach, Calif., which has $1.97 trillion in assets under management.
But a "pickup in wages would be more of a game changer" for the
Fed's rate policy rather than a pickup in growth.
Gold and the dollar slipped after the FOMC statement, but the
moves were muted, suggesting that investors in those markets also
didn't glean anything new on the central bank's monetary
policy.
Gold maintained early losses. The most actively traded gold
contract, for December delivery, was recently down $2.50, or 0.2%,
at $1,298 an ounce in afterhours electronic trading. The contract
settled $3.60, or 0.3%, lower at $1,296.90 an ounce when the
regular session at the Comex division of the New York Mercantile
Exchange closed.
Investors tend to flock to gold when the outlook for the economy
is worrisome. Wednesday's GDP report undercut fund managers' desire
to hold the haven investment.
The dollar weakened slightly against the euro. Dollar bulls are
betting that an accelerating recovery in the U.S. will force the
Fed to raise rates earlier than many market participants
anticipate. The lack of any new signals from the Fed represented a
slight setback for these investors. One euro recently bought $1.34,
compared with $1.3378 before the release of the FOMC statement.
In other economic news, Automatic Data Processing and Moody's
Analytics said the private sector added 218,000 jobs in July.
Economists had expected a gain of 238,000 jobs. The report is seen
as a preview to the closely watched government employment report,
due Friday.
Social-media stocks gained, as shares of Twitter rallied 21%
after a strong quarterly report. The company reported
second-quarter revenue that more than doubled and posted its second
consecutive quarter of accelerating user growth, reassuring
investors about the service's popularity.
Broadly, companies in the S&P 500 are on pace to grow their
second-quarter earnings by 6.7% from last year, according to
FactSet. They are on track for sales growth of 3.3%.
Amgen Inc. gained 6% after its revenue and adjusted earnings
beat forecasts and it lifted its forecasts for the year. It said it
intends to cut its workforce by 12% to 15% and close facilities in
two states, as it aims to concentrate resources on developing new
drugs.
Garmin Ltd. slipped 5.5%, despite posting stronger-than-expected
second-quarter earnings and lifting its outlook for the year. The
stock is up 19% so far this year.
U.S.-listed shares of AstraZeneca PLC rose 0.4% after the
company agreed to buy the rights to a portfolio of inhaled drugs
from Almirall SA. The deal is worth up to $2.1 billion.
Overseas, the Stoxx Europe 600 index edged down 0.5%.
In commodity markets, gold futures slipped 0.2% to $1,295.40 an
ounce and crude-oil futures shed 0.2% to $100.73 a barrel.
Min Zeng and Matt Jarzemsky contributed to this article.
Write to Alexandra Scaggs at alexandra.scaggs@wsj.com